Kolkata is a proud multi-cultural city, a fulcrum of the Indian intellectual tradition. Its personalities have included Subhash Chandra Bose, a freedom fighter, Rabindranath Tagore, a Nobel Prize-winning poet, and Swami Vivekananda, a Hindu spiritual leader. For legacy reasons, the National Library of India is housed here, not in New Delhi. It is also home to the Calcutta Madrassah, the oldest educational institution in the city.

The Calcutta Madrassah is a proud building, sensibly designed. It opened in 1824 off Haji Mahammad Mohsin Square, some 50 years after the founding of the original Islamic college. On approach through the compact urban turmoil surrounding it, the building looks like some sort of Alexandrine temple complex. Overpowering Doric columns flanking the main entrance direct you inward, where two floors of classrooms surround a courtyard. At the far end of this attempt at a grassy space, there is a lone water hand-pump. Despite its somewhat topsy-turvy condition, the Calcutta Madrassah is a haven of peace in the tightly-knit urban landscape.

This is a favourite of mine among the city’s countless historical buildings. Unlike some heritage sites, locked away in a pneumatic tube, this site has a bio-structure composed of squatters in the building’s perimeter, children playing in the courtyard, a caretaker living in a closet-sized room nesting between two classrooms on the ground floor, amid students routinely streaming through and the souk-like market scene on the streets outside.

In a post-crisis world, the Calcutta Madrassah and a global investment portfolio may have a lot in common. Even though the former is fairly concrete, while the latter is quite abstract, we see parallels that are worth exploring:

• Understand–and respect–the context. The school was originally set up for the “benefit of mankind or embellishment of the city.” It may barely be hitting these marks today, largely because of funding issues. Likewise, many institutional investors, at least until recently, may not appreciate the sober reality of their investment choices. Witness the credit crisis and its attendant fallout. Certainly Islamic banking has a new-found mandate in promoting sustainable banking.Further, I saw a small article in the local newspaper Indian Express about the US consulate sending an official to the school to determine whether students were being trained as terrorists. Chances are this was a deliberate piece of misinformation. Nevertheless, we wonder if Shariah-compliant portfolio management continues to be dogged by similar public-relations problems with Western audiences. Certainly a conference call I had this week with a US-based client touched on persistent concerns along those lines.
• Evaluate the discipline. Just as the school board presumably meets regularly to evaluate standards of education in the community, so must investment committees review and assess portfolio positions before their remit spirals out-of-control. It is a form of risk management. Far too many oversight committees, especially in the Islamic banking and finance community, merely rubber stamp decisions made by others.Kolkata Municipal Corporation recently declared the status of local Muslims as “pathetic.” There are many causes here, just as there are in mismanaged portfolio situations. It is perhaps best to anticipate potential portfolio problems through active and ongoing criticism.
• Sort out conflicting priorities. The Headmaster’s Office at the Calcutta Madrassah oversees a range of programs at the primary and secondary level, including a touch point with students from Aliah University, which uses rented classroom space here. How to allocate limited school funds across multiple audience demands?These challenges are characteristic of asset allocation decision-making. How to allocate across a range of opportunities? For the Islamic investor, we think global portfolios currently should have a bias toward private equity and Asia-related stocks, taking advantage of both distressed and growth situations. The conventional investor should likely continue to look toward US corporate bonds, at least over the near-term, given the potential for widening credit spreads.
• Invest available cash reserves. There seems to be a lot of unused space at the Calcutta Madrassah, including classrooms under seemingly long-term renovation. Likewise, we sense that institutional cash reserves would benefit from more proactive use, while maintaining, of course, sufficient liquidity to address opportunistic situations. Cash positions may be overly defensive at present, given that they were raised to extraordinary levels during the credit crisis.Especially in Middle East markets, institutions tend to do a poor job of exploring the full range of asset-class opportunities. A worldwide context almost always yields investment ideas worth exploring. We are now working, for instance, on an Islamic fund structure for Australian equities, a market relatively unscathed by the credit crisis and an interesting angle on the Asian growth story. Likewise, perhaps because of oil exposure, Gulf-based investors seldom consider other commodity groups.
• Adhere to an investment framework. The library at the Calcutta Madrassah sits next to the biology, chemistry, and physics labs. While these facilities are at the opposite end of the spectrum from those at secondary schools in Mayfair, London or the Upper East Side of Manhattan, the attempt at classification and segmentation indicates a certain respect for the sciences.My early-career mentor drilled into me an investment strategy framework based on (1) liquidity trends, (2) valuation readings, and (3) earnings momentum. Comparing fundamentals across markets and asset classes through strict application of these lenses consistently helps identify the better investment opportunity. Sometimes one may just get it wrong, but over time the form and structure afforded by this and similar approaches should provide rewarding outcomes.

One of my favorite images at the Calcutta Madrassah is a wooden school desk in Classroom 4 with “Shabbir” etched into the top. This piece of youthful expression does not strike me as vandalism in its context. It could have been carved last year or 50 years ago. It is a poignant reminder that the action-of-the-moment may have effects that can persist for decades.

Portfolio management falls into a similar construct. An educated framework helps to give one conviction to take action amid a chaotic and fragile world. And confident investors presumably are all-too-happy to brand their efforts.